14‐97‐bk(L) In re: Bernard L. Madoff Investment Securities LLC

In the United States Court of Appeals For the Second Circuit

August Term, 2014 Nos. 14‐97‐bk(L), 14‐509‐bk(con), 14‐510‐bk(con), 14‐511‐bk(con), 14‐512‐bk(con)

IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff‐Appellee,

v.

2427 PARENT CORPORATION ET AL., ESTATE OF DORIS M. PEARLMAN (IRA), HAROLD J. HEIN ET AL., LILLIAN BERMAN GOLDFARB ET AL., MBE PREFERRED LIMITED PARTNERSHIP ET AL., HHI INVESTMENT TRUST #2, MELVYN I. WEISS AND BARBARA J. WEISS ET AL., MICHAEL MOST, THE KOSTIN CO., MARSHA PESHKIN ET AL., Claimants‐Appellants,

IRVING H. PICARD, Trustee‐Appellee.

Appeal from the United States Bankruptcy Court for the Southern District of New York. No. 08‐1789 ― Burton R. Lifland, Judge. IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC

ARGUED: OCTOBER 14, 2014 DECIDED: FEBRUARY 20, 2015

Before: STRAUB, WESLEY, and LIVINGSTON, Circuit Judges.

Appeal from an order of the United States Bankruptcy Court for the Southern District of New York (Burton R. Lifland, Judge), approving the calculation of “net equity” claims under the Securities Investor Protection Act without an adjustment for inflation or interest and overruling claimant objections. We hold that the Securities Investor Protection Act does not permit an inflation or interest adjustment to “net equity” claims for customer property. Accordingly, we AFFIRM.

P. GREGORY SCHWED, (Walter H. Curchack, Daniel B. Besikof, Michael Barnett, on the brief), Loeb & Loeb LLP, New York, NY, for Claimants‐Appellants MBE Preferred Limited Partnership et al.

RICHARD A. KIRBY, (Laura K. Clinton, Scott P. Lindsay, on the brief), K&L Gates LLP, Washington, DC, for Claimant‐Appellant Estate of Doris M. Pearlman (IRA).

PAULA J. WARMUTH, Stim & Warmuth, P.C., Farmingville, NY, for Claimant‐Appellant Michael Most.

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Matthew Gluck, Matthew A. Kupillas, Jennifer Young, Milberg LLP, New York, NY, Parvin Aminolroaya, Seeger Weiss LLP, New York, NY, for Claimants‐Appellants 2427 Parent Corporation et al.

Parvin Aminolroaya, Seeger Weiss LLP, New York, NY, for Claimants‐Appellants Melvyn I. Weiss and Barbara J. Weiss et al.

Carole Neville, Dentons US LLP, New York, NY, for Claimants‐Appellants Harold J. Hein et al.

Philip Bentley, Elise S. Frejka, Kramer Levin Naftalis & Frankel LLP, New York, NY, for Claimants‐Appellants Lillian Berman Goldfarb et al.

Marcy Ressler Harris, Jennifer M. Opheim, Mark D. Richardson, Schulte Roth & Zabel LLP, New York, NY, for Claimant‐Appellant HHI Investment Trust #2.

Bernard J. Garbutt III, Morgan, Lewis & Bockius LLP, New York, NY, for Claimant‐Appellant The Kostin Co.

Helen Davis Chaitman, Peter W. Smith, Julie Gorchkova, Becker & Poliakoff, LLP, New York, NY, for Claimants‐Appellants Marsha Peshkin et al.

JOSEPHINE WANG, General Counsel, (Kevin H. Bell, Senior Associate General Counsel for Dispute Resolution, Christopher H. Larosa, Senior Associate General Counsel ‐ Litigation, Lauren T. Attard, Assistant General Counsel, on

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the brief), Securities Investor Protection Corporation, Washington, DC, for Plaintiff‐ Appellee Securities Investor Protection Corporation.

SEANNA R. BROWN, (David J. Sheehan, Jorian L. Rose, Amy Elizabeth Vanderwal, on the brief), Baker & Hostetler LLP, New York, NY, for Plaintiff‐Appellee Irving H. Picard, as Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Estate of Bernard L. Madoff.

STRAUB, Circuit Judge:

The issue presented in this appeal is whether the Securities

Investor Protection Act, 15 U.S.C. § 78aaa, et seq. (“SIPA” or “the

Act”), permits an inflation or interest adjustment to “net equity”

claims for customer property. We hold that it does not.

Claimants‐Appellants (“Claimants”) are former investors of

Bernard L. Madoff Investment Securities LLC (“BLMIS”). Trustee‐

Appellee Irving H. Picard (“Trustee”) was appointed, pursuant to

SIPA, as trustee for the liquidation of BLMIS.

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SIPA prioritizes the distribution of customer property in a

broker‐dealer liquidation. The Act creates a fund of customer

property for priority distribution exclusively among a failed broker‐

dealer’s customers, and customers share in the fund proportionally,

according to each customer’s “net equity.”

Because Madoff’s fraud lasted at least three decades,

Claimants ask that the Trustee adjust their proportional share of

customer property to reflect inflation; one Claimant also asks for an

interest adjustment, to reflect the time‐value of money. We agree

with the Trustee and the Bankruptcy Court, however, that SIPA

does not permit an inflation or interest adjustment to net equity

claims. Accordingly, we affirm the order of the United States

Bankruptcy Court for the Southern District of New York (Burton R.

Lifland, Judge), approving the Trustee’s unadjusted net equity

calculation and overruling Claimants’ objections.

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BACKGROUND

We described Bernard Madoff’s fraud in a previous appeal in

this case. See In re Bernard L. Madoff Inv. Sec. LLC,

, 231–

33 (2d Cir. 2011) (“Net Equity Decision”), cert. dismissed,

, cert. denied,

, and

(2012). Briefly stated,

although Claimants gave money to Madoff for investment, Madoff

never invested the customer funds. Id. at 231. To conceal his

complete lack of trading activity on behalf of his investors, Madoff

created fictitious paper account statements and trading records. Id.

The customer account statements listed purported securities

transactions, but they did not reflect any actual trading or holdings

of securities by Madoff on behalf of the customer. Id. at 231–32.

Madoff instead funded customer withdrawals with the principal

investments of new and existing customers. Id. at 232. The only

accurate entries in Madoff’s customer statements were those that

reflected the customers’ cash deposits and withdrawals. Id.

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After the collapse of BLMIS, the Trustee was appointed

pursuant to SIPA. Id. at 233. SIPA was enacted in 1970 as a response

to “a rash of failures among securities broker‐dealers” that caused

significant losses to customers whose assets “were unrecoverable or

became tied up in the broker‐dealers’ bankruptcy proceedings.” In

re New Times Sec. Servs., Inc.,

, 84 (2d Cir. 2004) (internal

quotation marks omitted) (“New Times I”). The Act creates

procedures for liquidating failed broker‐dealers and provides their

customers special protections. Net Equity Decision,

.

SIPA is designed to return customer property to customers.

See 1 Collier on Bankruptcy ¶ 12.01 (Alan N. Resnick & Henry J.

Sommer eds., 16th ed. 2014) (noting that the return of customer

property is SIPA’s “fundamental premise”). In a SIPA liquidation, a

fund of customer property, separate from the broker‐dealer’s

general estate, is established for priority distribution exclusively

among customers. Net Equity Decision,

. Customer

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property consists of “cash and securities … received, acquired, or

held” by the broker‐dealer “for the securities accounts” of

customers, except securities registered in the names of individual

customers. 15 U.S.C. § 78lll(4).

Customers of the broker‐dealer “share ratably in” the fund of

“customer property on the basis and to the extent of their respective

net equities.” Id. § 78fff‐2(c)(1)(B). The larger the customer’s net

equity, the greater the customer’s share of the fund of customer

property. 1 Collier, supra, ¶ 12.14. SIPA defines net equity, in

relevant part, as:

[T]he dollar amount of the account or accounts of a customer, to be determined by … calculating the sum which would have been owed by the debtor to such customer if the debtor had liquidated, by sale or purchase on the filing date … all securities positions of such customer … minus … any indebtedness of such customer to the debtor on the filing date ….

15 U.S.C. § 78lll(11). Payments to customers based on net equity are

made insofar as the amount owed to the customer is “ascertainable

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from the books and records of the debtor or [is] otherwise

established to the satisfaction of the trustee.” Id. § 78fff‐2(b); see also

Net Equity Decision,

.

SIPA guarantees customers a minimum amount of recovery.

When a customer’s ratable share of the recovered customer property

is insufficient to satisfy his or her net equity claim, the customer’s

claim can be supplemented by the Securities Investor Protection

Corporation (“SIPC”), which was created by SIPA and administers a

fund capitalized by the brokerage community. See 15 U.S.C.

§§ 78ccc, 78ddd. The SIPC advances to the SIPA trustee up to

$500,000 per customer, see id. § 78fff‐3(a), except that the advance for

a customer’s “claim for cash” cannot exceed $250,000, see

id. §§ 78fff‐3(a)(1), (d). To the extent that “customer property and

SIPC advances” are insufficient to satisfy a customer’s full net equity

claim, the customer is “entitled … to participate in the general

estate” as an unsecured creditor. Id. § 78fff‐2(c)(1).

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In the Net Equity Decision, we held that Madoff’s investors are

“customers” with “claims for securities” under SIPA.

. We also addressed how net equity should be calculated in this

case, given that SIPA’s definition of net equity references “securities

positions” but Madoff never invested customer funds. We rejected

the argument of various customers that their claims should be based

on the amounts listed in their last BLMIS account statement.

We

observed that reliance on Madoff’s false statements to determine net

equity “would have the absurd effect of treating fictitious and

arbitrarily assigned paper profits as real and would give legal effect

to Madoff’s machinations.”

. Instead, we upheld as a

matter of law the Trustee’s determination that net equity should be

calculated by the amount that a customer deposited into his or her

BLMIS account, less any amount that he or she withdrew from the

account.

, 236–42 & 238 n.7. We declined to address,

however, whether the calculation of net equity should be adjusted to

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account for inflation or interest, because the Bankruptcy Court had

not yet addressed the issue.

at 235 n.6.

Afterward, the Trustee and the SIPC argued to the Bankruptcy

Court that SIPA does not permit adjustments for inflation or interest

to customers’ net equity claims. Various claimants objected, some

seeking just an inflation adjustment, others an interest adjustment.

The Securities and Exchange Commission (“SEC”), which has

“plenary authority to supervise the SIPC,” SIPC v. Barbour,

(1975) (internal quotation marks omitted), disagreed with

the Trustee and the SIPC and contended that net equity could be

adjusted to account for inflation. The SEC argued before the

Bankruptcy Court that adjusting for inflation would be “an accurate

way to calculate customer net equity under the narrow set of factual

circumstances presented here,” although it acknowledged that “the

decision to make such an adjustment must rest on the Court’s

consideration of the costs and benefits of doing so.” SEC Mem. of

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Law at 4, SIPC v. Bernard L. Madoff Inv. Sec. LLC, 08‐01789‐smb

(Bankr. S.D.N.Y. Dec. 10, 2012), ECF No. 5142. However, in a

colloquy with the Bankruptcy Court, the SEC’s lawyer, when asked

what kind of deference he sought, stated that the SEC was “actually

not asking for deference.”

The Bankruptcy Court upheld the Trustee’s determination

that no adjustment for inflation or interest could be made under

SIPA. The court ruled that, as a matter of law, SIPA did not permit a

time‐based adjustment to net equity. It then certified an immediate

appeal of its decision pursuant to

(d)(2). We granted

the petition for direct appeal.

DISCUSSION

We review de novo the legal conclusions of the Bankruptcy

Court, including its interpretation of SIPA. Net Equity Decision,

. Claimants contend that the Bankruptcy Court erred in

concluding that SIPA does not allow an inflation adjustment to net

equity claims for customer property. They also assert that the SEC’s

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support for an inflation adjustment is entitled to Skidmore deference.

We disagree.

I. An Inflation Adjustment to Customer Net Equity Claims Is Impermissible Under SIPA

According to Claimants, without an inflation adjustment, the

claims of Madoff’s earlier investors are unfairly undervalued when

compared to the claims of Madoff’s later investors. Although SIPA’s

text does not provide for an inflation adjustment to net equity,

Claimants urge us to construe SIPA to permit trustee discretion to

make such an adjustment. But we conclude that an inflation

adjustment to net equity is not permissible under SIPA. An inflation

adjustment goes beyond the scope of SIPA’s intended protections

and is inconsistent with SIPA’s statutory framework.

SIPA does not address the possibility of an inflation

adjustment to net equity. The Act’s definition of net equity makes

no mention of inflation, see 15 U.S.C. § 78lll(11), whereas other, albeit

unrelated, portions of SIPA do, see, e.g., id. § 78fff‐3(e) (providing

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procedures for the SIPC to periodically “determine whether an

inflation adjustment to the standard maximum cash advancement

amount is appropriate”). And although SIPA instructs that

customer securities are valued, for purposes of calculating net

equity, as though they were liquidated “on the filing date,”

id. §§ 78lll(11)(A), (B), this does not indicate that cash deposited but

never invested is to be adjusted for inflation.1

SIPA’s silence is unsurprising. In a typical broker‐dealer

failure, an inflation adjustment to net equity would be nonsensical;

where securities are actually purchased for a broker‐dealer’s

customers, the securities have values that already incorporate

economic circumstances such as inflation. SIPA’s supposed purpose

1 The “filing date” is typically the date that the SIPC brings an application in

court for a protective decree because the broker‐dealer’s customers need SIPA protection. See 15 U.S.C. §§ 78eee(a)(3), 78lll(7). The term is used throughout SIPA, e.g., id. § 78fff(c) (determination of customer status); id. § 78fff‐2(d) (trustee’s purchase of securities to replace customer securities); id. § 78lll(3) (defining “customer name securities”), and it facilitates the return to customers of their investments as they were just before liquidation. Here, Claimants’ net equities are valued as of the “filing date” by incorporating prior deposits and withdrawals.

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was to remedy broker‐dealer insolvencies—not necessarily broker‐

dealer fraud. See H.R. Rep. No. 91‐1613, at 1 (1970), reprinted in 1970

U.S.C.C.A.N. 5254, 5255 (“The primary purpose of [SIPA] is to

provide protection for investors if the broker‐dealer with whom they

are doing business encounters financial troubles.”). Hence, as we

noted in the Net Equity Decision, SIPA does not specify how net

equity should be calculated in a case like this, in which a dishonest

broker failed to invest customer funds. 654 F.3d at 237–38. We

determined that “the statutory language does not prescribe a single

means of calculating ‘net equity’ that applies in the myriad

circumstances that may arise in a SIPA liquidation,” and “[d]iffering

fact patterns will inevitably call for differing approaches to

ascertaining the fairest method for approximating ‘net equity.’” Id.

at 235.

The flexibility espoused in the Net Equity Decision, though, has

no relevance to this case. The Net Equity Decision stated “no view”

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on whether the Trustee’s method for calculating net equity “should

be adjusted to account for inflation or interest.” Id. at 235 n.6.

Although we suggested, in dicta, that a SIPA trustee should

“exercise some discretion” in selecting “a method to calculate ‘net

equity,’” and a reviewing court should “accord a degree of

deference” to the method chosen, id. at 238 n.7, that standard is

inapplicable here: We conclude that SIPA’s scheme disallows an

inflation adjustment as a matter of law.

As we emphasized previously, SIPA is intended to expedite

the return of customer property. Id. at 240. Without SIPA, customer

funds and securities held by a failed brokerage could become

“depleted or enmeshed in bankruptcy proceedings.” See SEC v.

SIPC,

, 362–63 (D.C. Cir. 2014). SIPA “addresses that

issue by protecting the custody function of brokers.” Id.; see also

1 Collier, supra, ¶ 12.01 (explaining that SIPA protects investors

against losses “resulting from the failure of an insolvent or

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otherwise failed broker‐dealer to properly perform its role as the

custodian of customer cash and securities”). Net equity claims are

thus linked directly to the customer property held by a broker‐

dealer; SIPA instructs a trustee to process claims to the extent that

they are ascertainable from the broker‐dealer’s books and records or

otherwise established to the trustee’s satisfaction. See 15 U.S.C.

§ 78fff‐2(b). BLMIS’s books and records reflected only funds

deposited and withdrawn, without any time‐based adjustment, see

Brief for Trustee‐Appellee at 7, 23, and these deposits, less

withdrawals, constitute customer property in this case, see Net Equity

Decision,

; 15 U.S.C. § 78lll(4) (defining “customer

property,” in relevant part, as “cash and securities … received,

acquired, or held” by the broker‐dealer “for the securities accounts”

of customers).

Although SIPA defends investors from a broker‐dealer’s

failure to perform its custodial role over customer property, it does

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not otherwise shield investors from loss. Instead, the Act merely

restores investors to what their position would have been in the

absence of liquidation. We have noted that SIPA’s scheme “assumes

that a customer—as an investor in securities—wishes to retain his

investments despite the liquidation of the broker; the statute thus

works to expose the customer to the same risks and rewards that

would be enjoyed had there been no liquidation.” In re New Times

Sec. Servs., Inc.,

, 128 (2d Cir. 2006) (“New Times II”)

(internal quotation marks omitted). Hence, SIPA instructs a trustee,

in many circumstances, to provide customers with securities in kind

instead of a cash equivalent. See 15 U.S.C. §§ 78fff‐1(b)(1), 78fff‐

2(b)(2); see also id. § 78fff‐2(d) (providing that the trustee “shall, to

the extent that securities can be purchased in a fair and orderly

market, purchase securities as necessary for the delivery of securities

to customers in satisfaction of their claims for net equities”).

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SIPA likewise provides customers with no compensation for

the lost use of their securities or cash while liquidation is pending.

Customer securities, whether returned in kind or as a cash

equivalent, are valued as of the filing date, regardless of any

subsequent fluctuations in value. See 15 U.S.C. §§ 78fff‐2(b), (c)(1).

This may harm an investor if the securities fall in value, but

avoidance of loss beyond restoration of the pre‐failure status quo is

not SIPA’s goal. See 6 Collier, supra, ¶ 741.06 (“[I]n a SIPA

liquidation, customers are at risk for market loss.”). Although the

securities and cash have opportunity costs that are denied to the

investor during liquidation, and although the cash similarly may

have lost purchasing power in an inflationary economy, SIPA

returns to the customer the nominal pre‐liquidation balance. Cf.

SIPC v. Ambassador Church Fin./Dev. Grp., Inc.,

, 1210–12

(6th Cir.) (denying claims brought to recover post‐bankruptcy

petition interest for the “seven and one‐half year period that the

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SIPC had delayed in paying” investors’ claims, in part because “the

definition of ‘net equity’ does not include interest”), cert. denied,

(1986).

Claimants assert that adjusting net equity claims for inflation

is the fairest method of determining net equity. Yet, we have

explained that “SIPA was not designed to provide full protection to

all victims of a brokerage collapse,” and “arguments based solely on

the equities are not, standing alone, persuasive.” SEC v. Packer,

Wilbur & Co.,

, 983 (2d Cir. 1974). Contrary to

Claimants’ assertion, moreover, an unadjusted distribution of

customer property is not unjust. In fact, we recently found no abuse

of discretion in a district court’s approval, over objection, of a

receiver’s distribution plan to the victims of a Ponzi scheme that

lasted thirteen years, even though the distribution provided no

adjustment for inflation. See Commodity Futures Trading Commʹn v.

Walsh,

, 738–39, 754–55 (2d Cir. 2013); cf. also New Times

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I, 371 F.3d at 88 (agreeing that net equity was “properly calculated

as the amount of money” initially placed with the Ponzi scheme

brokerage, without noting the possibility of an inflation adjustment).

Because it is doubtful that the full amount of customer

property will be recovered in this case,2 each dollar allocated to

earlier investors in recognition of inflation reduces the amount of

principal recovered by later investors. Even if all customer property

were miraculously recovered, it would be insufficient to satisfy

customer claims to the extent such claims were increased to reflect

inflation. An inflation adjustment to net equity claims could allow

some customers to obtain, in effect, a protection from inflation for

2 The Trustee has stated that he is unlikely to recover the full amount of lost

customer money. See U.S. Gov’t Accountability Office, GAO‐12‐991, Securities Investor Protection Corporation: Customer Outcomes in the Madoff Liquidation Proceeding 6 (2012). Almost $20 billion in principal was lost in Madoff’s scheme, approximately $17.5 billion of which was lost by those who have filed claims with the Trustee. See Trustee’s Twelfth Interim Report for the Period Ending September 30, 2014, at 1 n.3, SIPC v. Bernard L. Madoff Inv. Sec. LLC, 08‐01789‐smb (Bankr. S.D.N.Y. Oct. 27, 2014), ECF No. 8276. As of late 2014, the Trustee had recovered roughly $10 billion. See id. at 1; see also http://www.madofftrustee.com. At oral argument in this appeal, the SIPC also predicted a shortfall in the amount of customer property recovered.

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which they never bargained, in contravention of the text and

purpose of SIPA, and at the expense of customers who have not yet

recovered the property they placed in Madoff’s hands.3

The purpose of determining net equity under SIPA is to

facilitate the proportional distribution of customer property actually

held by the broker, not to restore to customers the value of the

property that they originally invested. We thus previously

concluded that in this case net equity could not be based on fictitious

customer statements but instead should be determined based on

customers’ actual deposits and withdrawals. See Net Equity Decision,

. These deposits, net withdrawals, constitute

3 An adjustment to reflect deflation in the economy—rather than inflation—

would also be inconsistent with SIPA’s scheme. A deflation adjustment would prevent customers from obtaining priority return of the full amount of their customer property.

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customer property here. Under SIPA, Claimants’ net equity claims

cannot be adjusted to reflect inflation.4

II. The SEC’s View is Not Entitled to Deference

In reaching this decision, no deference is owed to the SEC’s

view. The SEC submitted a brief and participated in oral argument

before the Bankruptcy Court in support of the position that SIPA

permits adjustments for inflation to net equity claims.5 At the

hearing on this issue before the Bankruptcy Court, however, the SEC

stated that it was “not claiming Chevron deference.”6 The SEC even

4 To be clear, our holding is limited to a post‐liquidation adjustment of

customers’ net equity calculations. Obviously, if a customer’s pre‐liquidation account contained earnings from holdings that awarded interest or were protected against inflation, for instance, the customer’s claim for net equity would include those earnings, because they “would have been owed by the debtor to such customer if the debtor had liquidated … all securities positions of such customer.” 15 U.S.C. § 78lll(11). 5 During an appearance before the House of Representatives Subcommittee on

Capital Markets in 2009, the SEC’s Deputy Solicitor similarly contended that distributions to Madoff’s investors should reflect inflation. See Statement of Michael A. Conley, Madoff Ponzi Scheme, Capital Markets, Ins. & Gov’t Sponsored Enters., House Fin. Servs.,

(Dec. 9, 2009). 6 “Chevron deference is given to an administrative implementation of a statute

when it appears that Congress delegated authority to the agency generally to

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said more generally that it was “not asking for deference here,” but

that, “[i]f [it] were asking for deference … it would be Skidmore

deference.” The SEC has not filed a brief in this appeal, even though

SIPA provides that the SEC “may, on its own motion, file notice of

its appearance in any proceeding under this chapter and may

thereafter participate as a party.” 15 U.S.C. § 78eee(c). Claimants

nonetheless contend that the SEC’s position warrants Skidmore

deference.

In Skidmore v. Swift & Co.,

(1944), the Supreme

Court held that “an agency’s interpretation may merit some

deference whatever its form, given the ‘specialized experience and

broader investigations and information’ available to the agency, and

given the value of uniformity in its administrative and judicial

make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” Barrows v. Burwell, No. 13‐4179, __ F.3d __,

, at *1 n.6 (2d Cir. Jan. 22, 2015) (internal quotation marks omitted); see Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,

(1984).

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understandings of what a national law requires.” United States v.

Mead Corp.,

(2001) (internal citation omitted)

(quoting Skidmore,

). Skidmore deference is a “more

limited standard of deference” than Chevron deference. New Times I,

371 F.3d at 83. An agency’s interpretations “are ‘entitled to respect’”

under Skidmore, “but only to the extent that those interpretations

have the ‘power to persuade.’” Christensen v. Harris Cnty.,

(2000) (quoting Skidmore,

). In determining

whether to defer to an agency’s interpretation under Skidmore, we

consider “the agency’s expertise, the care it took in reaching its

conclusions, the formality with which it promulgates its

interpretations, the consistency of its views over time, and the

ultimate persuasiveness of its arguments.” New Times I, 371 F.3d at

83 (internal quotation marks omitted).

These factors do not support deference to the SEC’s

interpretation. The position that the SEC took before the Bankruptcy

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Court in this case is novel, inconsistent with its positions in other

cases, and ultimately unpersuasive. Cf. SEC v. SIPC,

(D.D.C. 2012) (holding that the SEC’s view on a distinct issue of

SIPA interpretation was entitled “to little, if any, deference” where it

contradicted the SEC’s longstanding view), aff’d,

(D.C.

Cir. 2014).

The SIPC explains that, in more than three hundred SIPA

liquidations prior to this one, the SEC has not once suggested that

the amount of customer claims subject to satisfaction with cash

should be adjusted to reflect inflation. See Brief for Plaintiff‐

Appellee SIPC at 43. In this case, the SEC asserted that adjusting

claims for inflation would provide the most accurate valuation, yet it

recently opposed an inflation adjustment in a different long‐lasting

Ponzi scheme. See Walsh,

. In Walsh, which addressed

a court‐appointed receiver’s proposed distribution, the SEC argued

that an unadjusted distribution was “the best and most fair

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approach” under the circumstances, “because it yields a substantial

recovery for all investors.”

(quoting the SEC’s joint

recommendation with the Commodity Futures Trading

Commission). Although the SEC’s position in Walsh noted that an

inflation adjustment might be “appropriate in certain instances,”

the reason stated for eschewing an adjustment in Walsh was the lack

of assets to fully satisfy each investor’s claim, see

which is

expected to be the case here as well.7 Nor do we ultimately find the

SEC’s brief before the Bankruptcy Court to be convincing. It echoes

Claimants’ contentions that we reject here.

7 In oral argument before the Bankruptcy Court, the SEC admitted the

incongruence of its stance in Walsh and its contentions to the Bankruptcy Court. See Transcript of Sept. 10, 2013, Hearing at 25, SIPC v. Bernard L. Madoff Inv. Sec. LLC, 08‐01789‐smb (Bankr. S.D.N.Y. Sept. 10, 2013), ECF No. 5476 (“We acknowledge that this is a position that we’re taking in this litigation and as you pointed out, a different position was taken in the Walsh case.”).

‐27‐ IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC

III. An Interest Adjustment to Customer Net Equity Claims Is Also Impermissible Under SIPA

In this appeal, only one Claimant seeks an adjustment for

interest, in addition to inflation; all other Claimants seek an

adjustment solely for inflation. The SEC likewise argued only for an

inflation adjustment. For the same reasons stated above with

respect to an inflation adjustment, supra Section I, we find that that

an interest adjustment to customer net equity claims is

impermissible under SIPA’s scheme.

CONCLUSION

For the foregoing reasons, we affirm the order of the United

States Bankruptcy Court for the Southern District of New York and

hold that SIPA does not permit an inflation or interest adjustment to

“net equity” claims.

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